Business Judgment Rule & Fiduciary Obligations of Boards
Fourth District Court of Appeal Enunciates Two-Pronged Test to Evaluate Decisions Made by the Board of Directors of a Community Association.
The officers and directors of community associations have a fiduciary relationship to the members (owners), as stated in §718.111(1)(a) and §720.303(1), Florida Statutes. The directors are obligated to discharge their responsibilities in good faith. Board decisions are generally protected by the "business judgment rule". The theory behind this rule is that Courts should not substitute their judgment for the judgment of the elected or appointed board members, so long as the members of the board acted in compliance with established standards of conduct. Florida Statutes, Section 718.111(1)(d), provides:
(d) As required by s. 617.0830, an officer, director, or agent shall discharge his or her duties in good faith, with the care an ordinarily prudent person in a like position would exercise under similar circumstances, and in a manner he or she reasonably believes to be in the interests of the association. An officer, director, or agent shall be liable for monetary damages as provided in s. 617.0834 if such officer, director, or agent breached or failed to perform his or her duties and the breach of, or failure to perform, his or her duties constitutes a violation of criminal law as provided in s. 617.0834; constitutes a transaction from which the officer or director derived an improper personal benefit, either directly or indirectly; or constitutes recklessness or an act or omission that was in bad faith, with malicious purpose, or in a manner exhibiting wanton and willful disregard of human rights, safety, or property.
The new test to determine whether the board's decision should be protected by the business judgment rule comes from a case where an owner prevented the association from extending balcony concrete repairs into her unit. The engineer for the project said to remove the concrete four inches beyond the corrosion, which necessitated work in the unit, not just the balcony. The owner hired her own engineer who said the extra work wasn't necessary.
The association sued to gain access to the unit to perform the repairs recommended by the project engineer. The appellate court explained that its review of the board's decision was limited by the business judgment rule and held:
...courts must give deference to a condominium association's decision if that decision is within the scope of the association's authority and it is reasonable - that is, not arbitrary, capricious, or in bad faith [emphasis added]
The case was sent back to the trial court for analysis pursuant to the new test, to wit:
- Does the board have authority to invade the unit to perform common element repairs?
- and, if so
- Is the decision to do so reasonable or, in other words, was the board decision to invade the unit arbitrary, capricious or made in bad faith?
This case is hot off the press and therefore not final if the parties file motions for rehearing.
Some REIT managers are placing solar panels on their properties after optimizing energy efficiencies. See http://www.reit.com/Articles/REITs-Slowly-Gaining-Solar-Power.aspx
Top 4 reasons to consider solar on condo bldgs after optimizing efficiencies:
1. Recent advances by companies using thin film solar and adhesives allow buildings to maintain aesthetic appearance.
2. First implementers may realize certain solar easements that could protect solar viewsheds. "Sunshine Moat"
3. Bldg owners that register their projects obtain tradeable carbon offsets and a potentially new revenue stream.
4. Hedge against increased energy costs.
RESPONSE: I agree with you 100%. We need changes to laws/regulations to maximize the cost recovery for condominium associations. I haven't even raised any "solar easement" issues yet on this site.